Preventing crash in stock market: The role of economic policy uncertainty during COVID-19

Financial Innovation

Toan Luu Duc Huynh¹  Xiong Xiong²  Peng-Fei Dai³  Zhifeng Liu⁴  Jianjun Sun⁵ 

[1] Chair of Behavioral Finance, WHU-Otto Beisheim School of Management, Vallendar, Germany;School of Banking, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam;College of Management and Economics, Tianjin University, Tianjin, China;College of Management and Economics, Tianjin University, Tianjin, China;School of Business, East China University of Science and Technology, Shanghai, China;Management School, Hainan University, Haikou, China;School of Economics, Hainan University, Haikou, China;

关键词: COVID-19;    Economic policy uncertainty;    Crash risk;    Skewness;    D80;    E60;    G10;    G32;   

DOI  :  10.1186/s40854-021-00248-y

来源: Springer

【 摘 要 】

This paper investigates the impact of economic policy uncertainty (EPU) on the crash risk of US stock market during the COVID-19 pandemic. To this end, we use the GARCH-S (GARCH with skewness) model to estimate daily skewness as a proxy for the stock market crash risk. The empirical results show the significantly negative correlation between EPU and stock market crash risk, indicating the aggravation of EPU increase the crash risk. Moreover, the negative correlation gets stronger after the global COVID-19 outbreak, which shows the crash risk of the US stock market will be more affected by EPU during the epidemic.

【 授权许可】

CC BY